CHICAGO – Minnesota’s economic forecast brightened a bit Thursday with new revenue projections adding $295 million to its surplus this year and chopping $463 million off the state’s projected $1.1 billion deficit for its next two-year budget.
The new forecast projects that the state will close the books on the current fiscal year June 30 with a positive balance of $295 million. Under state law, most will go to further pay off school aid delayed to help close the fiscal 2012-2013 budget deficit. The state will still owe about $800 million to districts and does not expect to make good on those payments until fiscal 2016-2017.
About $5 million of the balance will go to the state’s budget reserve bringing it to $649 million.
Headed into the next biennium, the state anticipates a $627 million hole to plug. “This is an improvement of $463 million from the November budget forecast that showed a projected deficit of $1.1 billion,” Minnesota Management and Budget Commissioner John Schowalter said in a statement.
The change is due to higher than previously expected revenues and a decrease in spending.
“The 2016-17 structural balance improves from $263 million in the November forecast to $782 million,” he said.
The state expects revenues of $36.1 billion in the next biennium beginning July 1, up by $323 million from previous estimates, and it expects to spend about $117 million less. Some other minor changes will also impact the deficit figure.
Projected gambling revenue was lowered by $15 million which will cut into the amount set aside in a reserve for the new Minnesota Vikings football stadium. The state plans to issue nearly $500 million of appropriation bonds later this year to help finance the nearly $1 billion project but will use revenues from expanded gambling to repay its share of the debt. The state is responsible for about $350 million and Minneapolis is responsible for the other $150 million.
The team is contributing $477 million towards the project. Though some lawmakers have raised concerns over gambling collections to date, state officials working on the financing have said a sufficient level is coming in to cover debt service.
The state’s forecast is based on data from Global Insight which “continues to expect slow growth in early 2013 as households adjust their spending to smaller paychecks caused by expiration of the payroll tax cut.”
The report notes that resolution of the federal fiscal cliff removed a major threat to the state’s economy but the impact of sequestration remains a risk. The impact is tempered however. “Minnesota’s direct exposure to federal cuts under sequestration is among the lowest of all states,” the report reads.
The Legislature will use the figures from the annual February forecast to tinker with Gov. Mark Dayton’s proposed fiscal 2014-2015 budget, which relied on figures from the state’s annual November forecast.
Dayton has proposed a dramatic tax overhaul in the $37.9 billion 2014-2015 budget characterizing it as the most “balanced” means to put the state on a structurally sound fiscal path.
The plan raises the income tax on top earners and lowers — but broadens — the sales tax. The income tax changes would generate an additional $1.1 billion and the sales tax another $2.1 billion while a proposed cigarette tax hike would raise $370 million.
The new revenue was designed to help close the previously estimated $1.1 billion deficit along with $250 million of cuts, pay for $1.4 billion in property tax relief, provide an additional $640 million for public education, and another $240 million for local and county government aid.
Dayton, of the Democrat-Farmer-Labor Party, in his first budget two years ago sought to raise income taxes on top earners to help cut a $5 billion deficit but was thwarted by Republicans who then controlled the Legislature. Democrats won a majority in the November election. Republicans are opposed to the tax increases and are likely to use the new forecast as ammunition to argue against them.
Standard & Poor’s rates Minnesota AA-plus and Moody’s Investors Service rates the credit Aa1, with a negative outlook. Fitch Ratings rates the state’s $6 billion GOs AA-plus.